It’s time for an Energy Reduction Act

General/ 17 September 2022

The Inflation Reduction Act (IRA), signed into law by President Biden in August, is the most significant climate legislation to ever be passed in the United States.

With $369 billion allocated to “energy security and climate change,” the bill aims to deliver a 40% emission reduction by 2030, resulting in long-lasting impacts for the US and beyond.

The Act’s focus on climate mitigation spending to solve both energy security and inflation represents a major step-change in political thought around climate action.

However, the Act risks being much more of the same, ie. adding energy, but not enough of the new, ie. reducing energy. The IRA predominately focuses on supply side solutions, with energy efficiency representing only 15%-20% of its total funding.

Of the energy efficiency funding, most is directed to households, which use (and waste) less energy than the public, commercial, industrial and transport sectors.

While energy should not be wasted, it is also important not to waste the opportunity to take full advantage of energy efficiency measures necessary to reduce the country’s energy demand and thus lower carbon emissions.

Is now the time for both the United States and the United Kingdom to learn from this and create an Energy Reduction Act that fully capitalises on the potential of energy efficiency?

The central push of the IRA is the incentivisation of the production of a diversified selection of clean energy, which is set to close about two-thirds of the remaining emissions gap between current policy and the nation’s 2030 climate target.

There is a big emphasis on making the electricity grid more renewable, yet electricity supply only accounts for only 25% of the US’ Greenhouse Gas (GHG) emissions, with transportation and industry together accounting for 51% of GHG emissions.

While making the electricity grid cleaner is vital to reducing emissions, building renewable energy generation is both time and cost intensive. On the other hand, energy efficiency projects are cost effective and quick to construct, making these overlooked, demand-side solutions vital to decreasing emissions to meet 2030 goals.

Despite these benefits, when it comes to energy efficiency measures, the IRA’s focus is on subsidies aimed predominately at private citizens, with the largest amount of funding being $9 billion for Consumer Energy Efficient Retrofits.

Although it’s great to see energy efficiency climbing rapidly up the transition agenda in the US, not enough is being done to address energy wastage.

“Most of the public would be shocked to learn that the US wastes more than two-thirds of the energy it uses”

Most of the public would be shocked to learn that the US wastes more than two-thirds of the energy it uses, with approximately 70% lost in conversion, generation, transmission, and distribution, before it even gets to the point of use.

Energy efficiency needs to be at the heart of the decision-making and sadly this has not been fully addressed by the IRA. The UK’s change in leadership presents an opportunity to learn from the US’ new Act.

The unveiling of a new £150 billion UK energy plan shows that the Government is rightly willing to try and address the problems caused by the energy crisis, but we must focus on reducing demand and investing in the areas where we can get the most benefit.

The International Energy Agency estimates that $1 invested in energy efficiency generates $2 of savings. So far, the case for energy efficiency has been largely overlooked in UK energy policy.

Considered as one of the most central pieces of policy in the UK’s goal of reaching net zero, the Energy Security Strategy gave almost no clear indication on how energy efficiency would feature in the Government’s energy transition plans, and it wasn’t addressed in the Chancellor’s Spring Statement.

In contrast, the commitment to energy efficiency is anchored in EU legislation and is one of the key pillars not only to meet EU’s climate objectives but also to reduce dependence on fossil fuels from abroad and increase security of supply.

The UK must target the areas the IRA failed to fully address, by reducing energy demand at the point of use, as well as making supply and distribution more efficient.

The UK can do this with commercially proven technologies at scale that are readily available today, such as on-site co-generation, solar and storage, renewable heat, bioenergy, green gas and hydrogen, efficient lighting, heating, cooling and controls.

By reducing the ‘size of the cake’, rather than relying on the supply side alone, we can find gigawatts of energy demand reduction, reducing and removing costs and carbon.

Jonathan Maxwell is CEO and Anjali Berdia is a sustainability associate here at Sustainable Development Capital, LLP.